Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Tuesday, January 1, 2008

The Pros and Cons of High Prices

Posted by D. Daniel Sokol

The Swedish Competition Authority has put out a collection of essays on The Pros and Cons of High Prices

ABSTRACT: Could there be any pros of high prices? The question is as natural as the question we got four years ago when we published "The Pros and Cons of Low Prices" – could there be any cons of low prices? These are questions competition authorities get from the public from time to other. It is a somewhat hard pedagogical task to answer them. The answer to both questions is yes, there are indeed pros of high prices and cons of low prices. The volume is devoted to exploring the pros and cons of high prices.

In the first contribution, Massimo Motta and Alexandre de Streel guides us through the last years policy debate regarding the treatment of excessive pricing. They call for extreme caution when taking action against excessive prices. In view of the different suggested methods, they propose a three plus one-condition test that has to be fulfilled.

Nils Wahl gives, in the second contribution, his personal reflection on the European case law regarding excessive prices. His conclusion from the case law is: “the Court has not yet condemned a particular pricing practice, in a free and unregulated market, as amounting to unfairly high and exploitative prices and thus constituting an infringement of Article 82.”

Bruce Lyons starts the third contribution with the apparent paradox of the exclusion of exploitative abuse. Monopoly pricing is the textbook abuse that every economics student learn in their first year of study. In other areas of competition law, the policy is concerned with attacking price-raising cartels, price-raising mergers and exclusionary abuse that lead to consumer exploitation. Yet, most competition economists do not want to see action against direct exploitation; why is it so?

Timothy Brennan focuses the fourth contribution on the contrast between static efficiency and dynamic efficiency. Should we allow firms to exploit market power in the short run in order to stimulate innovation? He dives into the literature and dissects the arguments put forward in favour of a non-interventionist approach.

In the last contribution, Mark Williams asks the question: excessive prices – do we care, and how would we know? We are more tolerant towards excessive prices as such compared to cartels or mergers to monopoly even if the outcome is the same. This implies that the way the excessive prices are achieved matters. He goes through several good reasons why this is so.

Taken together, the five contributions shed light on the issue of the pros and cons of high prices. Hopefully, this volume contributes towards a better understanding of the mechanisms through which high prices have an impact on markets – and towards a more effective enforcement of the competition rules.

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